If you only studied President Obama’s corporate tax proposal by reading news stories about it, you might be under a misimpression: that Obama proposed a business tax cut, and Republicans are too spiteful to take him up on it.
Here’s what really happened. Obama proposed a corporate tax overhaul that would cut the corporate tax rate from 35% to 28%. He would also greatly expand the corporate tax base, for example by reducing deductions for interest expenses and taxing more foreign income of U.S.-based multinationals.
These reforms would mean, in the long run, that the U.S. collects about as much corporate tax as it does under the current system. But in the first few years, the base broadeners would actually be designed so that revenue would go up. Obama wants to spend this money on infrastructure, community colleges, and promoting manufacturing.
So, Obama is proposing what amounts to a small, temporary tax increase to fund a small spending program. Republican opposition to this idea is not mystifying.
But many media accounts give the impression that Obama proposed a tax cut which Republicans are spurning. The New York Times, for example, describes the president’s plan in the first paragraph of their story as “a cut in corporate tax rates in return for a pledge from Republicans to invest in more programs to generate middle-class jobs.”
There is no mention of base broadening, a key part of the President’s plan, except as an implication from the note in the 13th paragraph that “Both Republicans and the administration have said that an overhaul of the corporate code should be ‘revenue neutral.'”
The Times also says this:
In the Republicans’ view, Mr. Obama’s offer was less of a “grand bargain” than an effort to extract a new fiscal stimulus program with money from a corporate tax cut that would end up, for accounting reasons, initially generating billions of dollars of revenue for the government.
This is wrong. The corporate tax rate cut wouldn’t generate any new revenue. It’s the base broadening provisions that would generate revenue, and not merely for “accounting reasons.” One of the revenue-raising ideas the White House floated today is an explicit one-time fee on profits of U.S. multinationals currently held abroad.
Or take CNN, which describes the plan as follows:
Obama suggested Congress cut corporate tax rates—long a goal of Republicans—while simultaneously making investments in job creation programs, which Democrats and the president have been championing…
The president’s plan would propose slashing the corporate tax rate to 28% from 35% while making the filing process simpler and ramping up incentives for small businesses to hire workers.
The plan would also put the tax rate on manufacturers at 25% and remove current tax incentives to send jobs overseas.
Again, this gives the impression that the president proposed, and Republicans rejected, a tax cuts-for-jobs spending trade. CNN does mention “removing current tax incentives to send jobs overseas” but (1) many of the President’s base-broadening proposals are unrelated to international taxation and (2) CNN does not make clear that such broadeners would slightly more than offset the revenue lost from the rate cut.
And on MSNBC today, The Cycle host Ari Melber asked me why Republicans are rejecting a corporate tax cut plan that’s so similar to one Mitt Romney proposed when he ran for president.
But what Obama proposed today isn’t actually like Romney’s plan at all. Romney wanted to cut corporate tax rates to 25% with no revenue offset, and then broaden the base to further reduce tax rates and eliminate taxation of foreign profits.
Romney wanted a really big cut in corporate taxes, not a revenue-neutral plan that expands the base in ways Republicans specifically dislike. If Obama had copied Romney’s proposal (not that he should have) the Republican reaction would have been very different.
The media’s misconstrual of the president’s proposal allowed Democratic partisans to stuff today’s events into a familiar narrative: President Obama bends over backwards to compromise, selling out the left, adopting Republican ideas as his own, and the Republicans spurn him anyway because their only principle is that they oppose what the president supports.
Republicans have done a lot over the last few years to make this narrative plausible. But it’s simply not what ghappened today.
Not every media outlet got this wrong. Zachary Goldfarb and David Nakamura’s writeup in the Washington Post is a particularly accurate and concise portrayal of the president’s proposal. But overall, the media dropped the ball on this story today, and made Republicans look worse than they deserved to.
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